Earlier this year (2018), the Reserve Bank of New Zealand increased the cap from 10 to 15 per cent for banks’ lending to home buyers with a deposit of less than 20 per cent. How has this change impacted first home buyers? And what should you be doing to improve your chances of a low deposit home loan? Read on to find out.
Banks are lending more
Data from CoreLogic New Zealand shows a rising share in the number of properties sold to first home buyers following a loosening up of lending requirements since the change to LVR restrictions in January 2018.
But, tough lending criteria is not the only obstacle for first home buyers: the biggest issue remains the affordability of property with prices at elevated levels. First home buyers with good savings and a sizeable amount in their KiwiSaver still struggle to find properties for which they can comfortably service a mortgage.
Many are having to look further out from the major cities in order find affordable homes: In Hutt and Porirua, 36 per cent of homes sold were to first home buyers, while farming areas in South Waikato and Ashburton recorded 33 per cent and 31 per cent respectively.
While banks will typically lend five times a person’s income, for low deposit home buyers that figure drops with banks wanting to see a decent surplus after expenses are taken into account; something that is especially challenging in areas like Auckland.
Improve your chances
Despite a loosening of the LVR – and the Reserve Bank has intimated more changes to follow in the later part of 2018 – securing a home loan with less than a 20 per cent deposit is tricky. Which is why it makes sense to put through a really strong home loan application to ensure you are successful.
Here are the things you need to think about when applying for a low deposit home loan:
- Excellent credit history: If you’ve ever defaulted on a loan, forgotten to pay a bill, or had an application for credit declined, it’s important you check and clean up your credit history.
- A saved deposit: The more money you can front up with, the better your chances. Remember to factor in any savings, fixed deposits as well as your KiwiSaver.
- Demonstrate good financial management: Create a budget and stick to it! Having a written budget clearly demonstrates that you are serious about your spending and saving.
- No other debt: Pay off your car and personal loans before applying for a mortgage as any personal debt you have could impact the amount your bank will lend you. Close any credit cards you’re not using and reduce your credit limits.
- Talk to a mortgage adviser: Working with a panel lenders, a mortgage adviser is experienced at finding a low deposit lender.
Sound financial advice
To ensure you’re in the best position for buying your first home, talk to one of our mortgage advisers today.
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication.
A Disclosure Statement is available on request and free of charge.